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A community group that wants to accept tax-deductible donations and apply for grants — but doesn’t want to (or can’t yet) go through the process of forming its own 501(c)(3) — can operate as a project of an existing nonprofit instead. The sponsor accepts funds on the project’s behalf, provides oversight, and typically charges an administrative fee, often 5–10% of revenue.

Legally, the money belongs to the fiscal sponsor, not the sponsored project, which means it has to be tracked as a restricted fund within the sponsor’s own books — usually with its own sub-ledger so the project can see its own income and expenses clearly, even though it isn’t a separate legal entity.

This model lets new initiatives get off the ground quickly with real fundraising capacity, while deferring the cost and complexity of incorporation until (and unless) the project is ready to stand on its own.

Many nonprofits, especially those funded by government grants or school districts, run a fiscal year of July 1 through June 30 to align with their major funders’ own budget cycles. Others use October–September (aligned with the federal fiscal year) or a straightforward calendar year. There’s no single right answer — the best fiscal year is whichever one matches the rhythm of the organization’s biggest funding relationships and program cycles.

Once set, a fiscal year should stay consistent, since changing it requires filing a short-period return with the IRS and can complicate year-over-year comparisons. All budgeting, board reporting, and the annual audit are built around this period.

Software and reports that silently assume a January–December year are a recurring headache for nonprofits — a system built for fund accounting needs to treat the fiscal year as configurable per organization, not hardcoded.

Unlike a for-profit tax return, Form 990 isn’t primarily about calculating tax owed — most of what’s on it is public record, searchable by anyone through the IRS or sites like ProPublica’s Nonprofit Explorer. Donors, funders, and watchdogs routinely read a nonprofit’s 990 before writing a check, which makes it as much a trust document as a compliance filing.

The form requires reporting revenue and expenses by functional classification (Program, Management & General, Fundraising), listing the compensation of officers and key employees, and disclosing governance practices like whether the board reviews the CEO’s pay. Smaller organizations may qualify to file the simpler 990-EZ or 990-N (“e-Postcard”), based on gross receipts and asset thresholds.

Because so much of the 990 is pulled directly from year-end financial statements, keeping the chart of accounts aligned with functional expense categories throughout the year turns 990 prep from a research project into a straightforward export.

A for-profit business tracks one bottom line: profit. A nonprofit tracks many — a federal grant restricted to direct services, a foundation grant that covers salaries but not overhead, unrestricted donations, and a board-designated reserve, all sitting in the same bank account but governed by entirely different rules.

Fund accounting keeps those dollars separate on the books even when they aren’t physically separate in the bank. Each fund carries its own balance, its own permitted uses, and its own reporting obligations, so the organization can always answer “how much of this grant is left, and what can it still be spent on?” without guesswork.

This is the foundational concept underneath nearly every other term in this glossary — restricted funds, net asset classifications, and grant compliance all exist because fund accounting requires tracking purpose alongside amount.